Turkey’s delusions of grandeur triggers currency panic

After President Erdogan promised more mega-projects and said very little on fiscal discipline or tighter monetary policy in his introduction of the 100 day action plan on Friday, markets severely punished Turkey with a sell-off in TL. At some point the Turkish currency was down by 7% vs. the American dollar, with an op-ed piece in Financial Times arguing that the new US sanctions have increased the odds of a balance-of-payments crisis in Turkey.

Late in the trading day, Central Bank of Turkey (CBRT) fine-tuned its Reserve Option Mechanism to release $2.2 bn to the banking system over the next 15 days, in a reaction perceived as yet another effort to eschew much-needed rate hikes. It got stranger in the evening with Turkey’s religious authority, the Diyanet jumping into the fray and advising the devout to recite prayers from Quran to fight currency weakness. All this time, the chatty economy czar Mr. Berat Albayrak kept his silence, suggesting either Ankara doesn’t see a problem with the declining currency, or he has failed to persuade Erdogan to let CBRT hike rates.

Robin Brooks of IIF stated in a tweet that “The continued decline in the real effective Lira reflects something other than macro. Markets are testing the authorities’ policy reaction function, looking for a stronger response and a return to orthodoxy. Unfortunately, the Lira is undershooting — significantly — fair value”.

This is probably true, investors wish to know whether Erdogan has abandoned his strange theories on interest rates, growth and inflation. What makes Turkey so unique in terms of its persistence to pursue policies blaringly at odds with the rest of the world? Turkey has delusions that it is a superpower have led to a deepening crisis with the United States, said Simon Waldman, head of the Turkish Studies Research Group at King’s College London, writes Ahval News. A column in avidly pro-government Daily SABAH argues “The world has changed. Failure to accept that fact will only hurt American interests”, verifying the delusions of grandeur theory.

Turkey’s delusions of grandeur at root of U.S. crisis

This false impression of its power is one of the root causes of problems with the United States, which also include a weak Turkish state and increasing authoritarianism in the country, Waldman wrote for his blog, simonwaldman.org.

“Turkey suffers from delusions of grandeur when it comes to international affairs and finds it difficult to reconcile its self-image of greatness, often emanating from a selective and politicised memory its Ottoman past, with the reality that Turkey is not even a regional hegemon, let alone an international power,” he said. “Turkey is a medium sized power at best, albeit one with potential if it effectively harnesses its human capacity.”

Waldman said Turkey, which does not see itself as part of the Western or the Russian orbit, sometimes needs a shock in order to recalibrate its self-image with reality.

“This is what happened with Russia after Moscow announced sanctions in 2015 following Turkey’s shooting down a jet hovering over its airspace,” he said. “Following this wake-up call, relations between Turkey and Russia were soon back on track. Some advice to Ankara, if you live with a lion, don’t pull its tail!!”

The nature of the Turkish state, which is weak and fragile, is also misunderstood by Western and Turkish officials alike. Turkey can be characterised as such because internal threats to its security are greater than external ones, Waldman said. Also, many Turks see the primary threat to their security as the state itself, which is the case for Kurds in the southeast and those affected by the purge following a failed coup in July 2016, he said. (Ahval)

A road map to defuse the Turkey-US crisis

An article by Mr. Yahya Bostan in daily SABAH provides proof of Turkey’s mistaken image of self. This is not selective evidence. The AKP controlled media is trying hard to convince the citizenry that US will lose more from the Pastor Brunson crisis.

In other words, Turkey protected its national interests even during the Cold War, when it was weak and completely dependent on Washington. It continued to pursue its goals despite U.S. objections and, eventually, economic sanctions.

What about now? The Cold War is over. That is water under the bridge. Turkey strengthened its economy, increased exports and improved its technology and industry. Today, it is one of few countries that manufacture armed drones. There are several nuclear power plants currently under construction in Turkey. The country’s population has grown and its human capital has increased. Its military is one of the finest fighting forces in the world. Having escaped the straitjacket of the Cold War, Ankara strengthened its diplomatic relations with countries like Russia and China. In the Middle East and the Balkans, it came to hold a certain level of soft power.

Although the world has washed off the stain of the Cold War and major changes have taken place since then, the United States expects Turkey to act like it’s still 1960. Washington refuses to treat Ankara as its equal and instead demands that the Turks ignore their vital interests in order to look out for U.S. interests. To say the least, this is an unreasonable expectation.

In addition not keeping its promises to the Turks, the U.S. is has Hakan Atilla, an innocent Turkish citizen, behind bars for evading Washington’s unilateral sanctions on Iran – all in violation of international law. Ironically, the same sanctions were lifted by the Obama administration as part of the Iran nuclear deal, from which the Trump administration recently withdrew. Once again, the U.S. urges Turkey not to buy natural gas from Iran, without explaining to the Turks how they are supposed to survive winter without Iranian gas.

The arrest of Andrew Brunson in Turkey followed a series of crises that had been taking place since 2010. To be clear, the crisis between Turkey and the U.S. would have deepened even without Brunson behind bars. After all, the current problems aren’t caused by Turkey’s actions but Washington’s refusal to accept that the Cold War is over and the unipolar world order no longer exists.

This relationship will not improve until the U.S. wakes up to this fact and somebody explains to President Donald Trump what is really happening. The world has changed. Failure to accept that fact will only hurt American interests. SABAH